Finance (No. 2) Bill

Debate between Lord Sharma and David Gauke

Wednesday 25th March 2015 Commons Chamber

[Mr Gauke]

We have established the Office of Tax Simplification and put in place a large number of its recommendations. I could spend some time talking Members through some of them. It is also worth pointing out that just last week the Chancellor of the Exchequer announced plans to take very large numbers of people out of having to pay income tax on their savings, reducing the need for them to be in the self-assessment system. Indeed, we have set out longer-term plans to simplify the operation of the tax system through a more digitised system with online tax accounts, which will make a substantial difference to many people. I should also point out that from April of this year we will have one rate of corporation tax, which means that we no longer need a marginal rate with some 50,000 businesses having to calculate what to pay in a more complicated way. The Government have taken a number of steps on tax simplification.

We are committed to all the tax measures that the Chancellor set out last Wednesday, but appreciating the constraints on the timetable we have deliberately held a number of measures back and published a shorter Bill than would otherwise have been the case. Unlike under previous Governments, legislation for Finance Bills since 2011 has been published in draft three months ahead of the final publication of the Bill. Under this new approach, we published more than 250 pages of draft legislation in December for technical consultation, again meeting our commitment to expose legislation in draft.

We are proceeding today on the basis of consent. The Opposition required us to remove five clauses from the Bill following discussions last week. The clauses concern a new tax exemption for the travel expenses of members of local authorities; a new statutory exemption from income tax for trivial benefits in kind, implementing a recommendation of the Office of Tax Simplification’s review of employee benefits and expenses; simplifying link company requirements for consortium claims under corporation tax; a separate rate of excise duty for aqua methanol; and changes to scheme rules for the enterprise investment scheme and venture capital trusts. The Government would look to legislate on all five of those clauses at the earliest opportunity at the start of the new Parliament.

I will happily take further interventions this afternoon, but let me first set out the order in which I intend to discuss the measures in the Bill. I will begin by talking about those that will boost growth and enterprise. Next, I will cover those that tackle avoidance and aggressive tax planning and then I will cover those that help families and savers do more with the money they earn. Finally, I will talk about how the Bill, like previous Finance Acts in this Parliament, will help to deliver a simpler tax system.

Let me begin with the measures designed to boost growth and encourage enterprise. Hon. Members will be aware that our long-term economic plan is working and confidence is returning to businesses and our markets, but that growth would not have been possible without the hard work of businesses up and down the country. During our five years in office, we have created the right environment to help businesses start, grow and succeed. When we came to office, Britain had one of the least competitive business tax regimes in Europe. Now it is the most competitive. Next week, corporation tax will be cut to 20%, one of the lowest rates of any major economy in the world. By 2016, that will mean £9.5 billion savings for businesses across the UK every year. That is why more and more businesses are moving operations here, starting up here or growing here.

The Bill will also bolster support for research and development and the creative sector. We are increasing the research and development tax credit for small and medium-sized enterprises from 225% to 230%, increasing the rate of film tax relief to 25% for all expenditure and introducing a new children’s television tax relief. I am sure those are industries that Members on both sides of the House will support.

The Government will not sit back and let hundreds of thousands of jobs be put at risk thanks to falling oil prices. The Bill recognises the importance of the future of the North sea oil and gas industry, our largest industrial sector. With effect from the start of next month, the Bill introduces a single, simple and generous tax allowance to stimulate investment at all stages of the industry, giving investors early certainty for their long-term investment decisions. We are also cutting petroleum revenue tax from 50% to 35% to encourage continued production in older fields. Backdated to the beginning of January this year, as announced by my right hon. Friend the Chancellor last week, the Bill also cuts the supplementary charge from 32% to 20%.

[Alok Sharma (Reading West) (Con)]

My hon. Friend talks about the policies that are being put in place by the Government to help businesses. Does he share my view that the freezing of fuel duty has helped not just businesses but individuals, and will he tell us how much of a saving businesses and individuals make every time they fill up their vehicle?

[Mr Gauke]

My hon. Friend is absolutely right. Very often, the debate in this House is about the impact on individuals of the freeze on fuel duty, which has considerably reduced how much fuel costs. As a consequence of our measures, £10 is saved per tank full of petrol. He is also right to mention the impact on businesses, because many of them, particularly smaller ones, pay this tax. We can sometimes forget that in that debate. Fuel duty is now 16p per litre lower than it would have been under the previous Government’s plans.

Let me return to the provisions on oil and gas. The new cluster area allowance will support the development of one of the biggest fields in the UK continental shelf, which is expected to generate about 3,500 jobs and more than £3 billion in capital investment. As hon. Members can see, the Bill tackles some of the challenges facing our business community and our economy.

Now that I have set out such competitive tax rates, designed specifically to support our businesses, let me say that we expect those taxes to be paid. The Bill continues the Government’s firm action against the small minority who seek out unacceptable ways to reduce or delay paying the taxes they owe. Under the Bill, we will legislate to create a fairer tax system by clamping down on tax avoidance and ensuring that banks contribute their fair share. Taking effect from the start of next month, the Bill will introduce a new diverted profits tax of 25%, aimed at large multinationals that artificially shift their profits offshore to avoid paying UK tax. As part of the project, I can confirm that we are working with five other tax authorities to investigate and challenge how digital multinationals shift their profits to tax havens. For the first time, we are gathering a full global picture of the tax risks those companies pose that is invaluable in helping us take decisive action.

The Bill will also increase the bank levy to 0.21% and introduce new rules for banks on carried forward losses, to ensure that banking companies can use them only to relieve up to 50% of company profits. Combined, those measures will raise nearly £8 billion over the next five years. We have always been clear that banks should make an additional contribution that reflects the risks they pose to the UK economy, and now that banks are strengthening their balance sheets and returning to profitability, they should make a greater contribution to the economic recovery.

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[Alok Sharma]

My hon. Friend is being generous in giving way. I welcome the diverted profits tax and I think that my constituents will very much welcome that measure. Will he confirm that it comes on top of all the work the Government are leading at the OECD and that, in September or later this year, we will therefore see further rules coming in to clamp down on base erosion?

[Mr Gauke]

My hon. Friend again makes a very good point. This Government have led the way in the establishment of the OECD’s base erosion and profit shifting project. We are already implementing some of its conclusions, including in this Bill, but there is more work to be done. The diverted profits tax is consistent with the direction that we want the BEPS project to go in, which is to align economic activity more closely with taxing rights. That is the direction in which the international tax system needs to move, and the diverted profits tax is consistent with that approach.

The Bill legislates for corporation tax loss refresh prevention, which will stop companies obtaining a tax advantage by entering highly contrived arrangements to turn old tax losses into new, more versatile losses. We will close loopholes to make sure that entrepreneurs relief is available only to those selling genuine stakes in businesses. We are strengthening civil sanctions targeting individuals with hidden income, gains or assets overseas to ensure that taxpayers who do not pay their fair share are penalised. We are tackling avoidance by large businesses and wealthy individuals, and we are tackling tax evaders.

[Alok Sharma]

My hon. Friend is talking about fairness in the tax system, which we all want. Will he confirm that under this Government the top 1% of taxpayers will pay more in tax than they ever did under the previous Government?

[Mr Gauke]

My hon. Friend makes another excellent point. This year, the proportion of income tax paid by the highest earning 1% will be above 27%, higher than for any year under the previous Government. I dare say that we will debate that in a little more detail later this afternoon. On this Government’s record in ensuring that those with the broadest shoulders make the biggest contribution, the facts are very clear: they are doing so under us. A whole host of measures that we have taken, not least in areas of tax avoidance, have ensured that we are getting in that money.

Stamp Duty Land Tax Bill

Debate between Lord Sharma and David Gauke

Wednesday 10th December 2014 Commons Chamber

[The Financial Secretary to the Treasury (Mr David Gauke)]

I beg to move, That the Bill be now read a Second time.

My right hon. Friend the Chancellor announced in last week’s autumn statement an important and comprehensive reform to stamp duty land tax—SDLT—on residential property. Many Members made their views known on the SDLT changes in last week’s debate on the provisional collection of taxes motion. Today is an opportunity for others to raise their voices, although looking around the Chamber, it appears possible that the House’s appetite for debating this matter was sated last week.

With effect from 4 December, the structure, rates and thresholds of stamp duty land tax have changed, and stamp duty has moved from a slab to a slice arrangement.

[Alok Sharma (Reading West) (Con)]

Of course I, like many colleagues, welcome the measure. My constituents are some of the most aspirational people in the country, and they think that this is a great move by the Government. What assessment has my hon. Friend, or perhaps the Office for Budget Responsibility, made of likely increases in the volume of property transactions as a result of this change to stamp duty?

[Mr Gauke]

This is likely to have an impact, with more transactions for properties on which the stamp duty bill has fallen—some 98% or so—and slightly fewer transactions when a larger stamp duty bill will apply. Although there will be an element of behavioural change as a consequence of the measure, property transaction numbers and house prices will be affected by a whole range of factors, so it can be difficult to ascribe any particular changes to one particular reason. However, it is likely that there will be more transactions, and that has certain advantages, such as for labour market mobility, and if it means that people are living in the homes that they want to live in as opposed to feeling trapped in their property to a certain extent. I think that the measure will have a beneficial impact on the housing market.

Each new SDLT rate is now payable only on the portion of the property value that falls within each band. That is in contrast to the old system, under which tax was due at one rate for the entire property value. Moving from a slab to a slice arrangement is right in terms of fairness and economic efficiency. The new arrangement will cut SDLT for 98% of people who pay the tax, and no one who is buying a home worth up to £937,500 will pay more.

This Government believe in aspiration. The aspiration to own our own house is one of the elements of human nature. It is something that, for generations, has been totemic for people in this country. This is a Government who will help people to achieve that ambition, and do so in a fair and equitable way.

The previous stamp duty system was flawed. It had been criticised by hon. Members on both sides of the House, industry and think-tanks. It was

“one of the worst designed and most damaging of all taxes”,

according to the director of the Institute for Fiscal Studies, and “unfair” according to the Building Societies Association. According to the Royal Institution of Chartered Surveyors, it did not

“work as it stands and creates large distortions”.

The problem with the previous system was simple. The slab approach created an enormous hike in taxes at certain thresholds. If someone paid £250,000 for a house, they would pay £2,500 in stamp duty. If they paid £250,001, however, they would pay £7,500—three times as much. In reality, of course, nobody did; they would have been crazy to. What happened was that there were dead zones—in this case a little above £250,000—in which almost no transactions actually took place.

To return to the intervention made by my hon. Friend the Member for Reading West (Alok Sharma), this change is likely to result in a substantial increase in the number of transactions in those dead zones because of the ending of the bunching effect, which should help us to have a more efficient market. Let me again give an example that I cited in last week’s debate: in 2013-14, there were over 30 times as many sales between £245,000 and £250,000 as there were between £250,000 and £255,000. Given that the average UK house price is around £275,000, this was a big distortion affecting a significant number of properties.

What also happened was that people owning properties a little under the threshold were reluctant to improve them for fear that that would be money thrown away if they came to put the property on the market. Also, people wishing to move up the property ladder as their families grew, but who found themselves on the wrong side of the step upwards, had to find a significant—and arbitrarily imposed—lump sum precisely at a time when there are hundreds of other one-off expenses to worry about. We have got rid of the inefficient and distortive old system, and replaced it with a fairer new system that cuts SDLT for 98% of people who pay it.

Under the new structure, no buyer purchasing a property will pay anything at all up to the first £125,000. Buyers will be charged 2% for the portion from £125,000 to £250,000, and 3% for the portion from £250,000 to £925,000. Those individuals buying a house worth more than £925,000 will be charged 10% for the portion of the price between £925,000 and £1.5 million, and buyers will pay 12% tax for any portion of the price above the £1.5 million threshold.

I stress that the tax will be paid once, and once only, at the point when the purchaser has the cash to do so. Once it has been paid, that is it, because we do not believe in introducing a system that would require homes to be revalued every year, or in imposing a large liability on people who may be asset-rich but cash-poor.

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[Mr Gauke]

I do not know whether the hon. Gentleman is referring to the fact that there has been a deliberate shrinkage of the tax base, in that we have taken 3.4 million people out of income tax. Perhaps that was not what he meant, but I am happy to draw the House’s attention to that policy none the less. The Government have, on a number of occasions, made the tax system more progressive. At a time when the public finances are in a difficult position and we need to consolidate them, we have ensured that the wealthiest in society bear a significant burden, and this measure is an example of that. We have made stamp duty land tax more progressive by reducing the burden on ordinary households and collecting more tax from the top end, where there has been a significant appreciation in values in recent years.

[Alok Sharma]

My hon. Friend talked about the yearly property tax that others have proposed, but irrespective of whether such a tax were introduced, is it not the case that it would not help those who want to buy their own house? Does he agree that the Government are introducing aspiration into home buying, which is something that we should all be encouraging?

[Mr Gauke]

Indeed; that is right. These measures will be helpful for those who want to get into the housing market and who often face significant challenges in putting together a deposit and meeting the transactional costs involved. I believe that it will be helpful that we have been able to reduce the transactional costs. I return to the point I made a few moments ago: this measure will help households up and down the country and we, as a Government, believe in aspiration.

Let me stress that in every city, town and county in the United Kingdom, a large majority of people will benefit from the new system. No buyer of a property under £937,000 will pay more tax than under the previous system, and there will be a tax cut for 98% of home buyers who currently pay SDLT. In London, 91% of home buyers who pay SDLT will see their tax bill cut. In Scotland, Wales and Northern Ireland, over 99% of those paying SDLT will see the rewards in their pockets. A buyer of the average Help to Buy home priced at £185,000 will be £650 better off as a result of these reforms.

The reforms came into force at midnight on 4 December to avoid creating undue distortions in the market, meaning that a stand-alone Bill was necessary. The Bill was introduced in Parliament on 4 December, following a provisional collection of taxes motion at the end of the autumn statement. If a person had exchanged contracts before 4 December but completes on or after that date, our transitional arrangements mean that they can choose whether to use the old or the new rates and structure. We have provided a calculator on the Her Majesty’s Revenue and Customs website so that people can work out how much tax they would be paying, and I am happy to confirm that it has been used more than 880,000 times since it was put in place on Wednesday.

It is a bit of a standing joke that the UK is a country obsessed with house prices, but for most of us, buying a home involves the biggest amount of money we will ever spend. Stamp duty land tax is an important source of Government revenue. It raised £6.5 billion in 2013-14 to pay for the essential services that the Government provide and support. However, it is only reasonable that the tax should be imposed fairly and equitably. As a result of difficult decisions that we have taken elsewhere, we are now able to forgo £800 million of revenue to introduce these changes.

The changes have been warmly welcomed. They are

“great news for those buying a home or considering a move”,

according to Nationwide. They are particularly good for

“first time buyers and second steppers”,

according to Savills, and

“a shot in the arm for families and growing firms”,

according to the CBI. My particular favourite came from a Mr Tom Whipple—a science correspondent for The Times—on Twitter, who wrote:

“We are moving home next week. Osborne just saved us £400. I’m calling our new fridge freezer George.”

That is how to become a household name in politics!

On a more serious note, I would like to touch on how the change affects Scotland. From 1 April 2015, the land and buildings transactions tax—LBTT—will replace stamp duty land tax in Scotland. Up until that point, these reforms will apply to all residential property transactions in the UK, including Scotland. This will ensure that home buyers in Scotland do not miss out on a potential tax cut before the LBTT comes into operation.

I am aware that there are some in the UK who will be unaffected by this change. As housing has become less affordable, the rate of home ownership has fallen from its 2003 peak of 70% to around 65%. Many are wondering whether they will ever get on to the housing ladder. Our reforms to SDLT will assist those households by reducing the amount of cash needed at the point of purchase. It should be stressed that SDLT is part of a much wider set of reforms designed to get Britain building, to increase radically the supply of housing units, and to release some of the pressure on our housing market.

[Alok Sharma]

The Minister cites the schemes that the Government have implemented to help people to buy their own homes. Will he tell us how many people have benefited from the Help to Buy scheme? Will not these changes give a further boost to the scheme?

[Mr Gauke]

My hon. Friend raises an important point. Indeed, I am about to mention some of the measures that we have taken in respect of helping the housing market, including Help to Buy.

We are investing billions of pounds of public money to provide affordable new homes, including £4.5 billion during this spending review period to provide 170,000 new units, and a further £3.3 billion to deliver 165,000 more units over three years from 2015. As announced in the autumn statement, there will be another £1.9 billion between 2018 and 2020 to continue delivering homes at the same rate. We are also reforming planning laws. The autumn statement package contains commitments on releasing land with capacity for up to 150,000 homes and new measures to support up to 133,000 homes.